Pick-up of activity in oil rig market lifts Pressure

SPECIALIST engineer Pressure Technologies cheered shareholders with the news of a pick up in the oil rig market.

The Sheffield firm, whose high-pressure products serve the oil and gas, aviation and defence sectors, saw its shares close up 5p to 215p last night following the news.

The group said that since the start of the year, activity in the deep water oil rig market has begun to return. Its CSC division has secured orders on three oil rig projects for delivery in the current financial year and there are signs of this market accelerating into 2012.

Chief executive John Hayward said the pipeline of enquiries, across all sectors of the cylinder business, is strong.

This follows an anticipated slow start to the year due to a lack of orders for the deepwater rig market. A stronger performance in the second half is expected to offset this.

Ripples from BP’s oil spill in the Gulf of Mexico last year constrained deepwater drilling, driving down demand for Pressure’s ultra-large cylinders used in oil rigs. Combined with losing work to a South Korean competitor and slow markets, this drove the group’s pre-tax profits down 31.4 per cent to £3.5m in the year to October.

With oil hitting $100 dollars a barrel earlier this year, more orders should flow through over the coming months.

When oil prices are high, companies tend to place orders as they feel more confident about the future. But when oil slips below $70 a barrel investment halts.

The company said its engineered products division is performing as expected with strong demand in the energy sector.

Its Chesterfield BioGas division has won orders for two compressed natural gas filling stations for vehicle refuelling and is in discussions with a number of large utility companies for ‘biogas to grid’ (BtG) upgrade projects.

The rapid growth in the BtG market hinges on the Department of Energy and Climate Change’s confirmation of the level of the Renewable Heat Incentive (‘RHI’). This is due to be announced by the end of March.

“We anticipate that this will catalyse the conversion of potential projects into firm orders,” said Mr Hayward. “Lead times on BtG projects, however, are considerable, so this announcement will have little impact on the group’s performance in the current financial year.”

The group said that its financial results will be subject to the timing of orders at CSC. It added that it will have a clearer view on the likely full year result by mid-April when it will issue another trading update.

It added that it is confident of a return to organic growth in the medium term and it aims to strengthen the company with niche acquisitions if opportunities arise.

Analysts at HB Markets said the first quarter trading statement was in line with the lowered expectations for the period, caused by lack of orders for the deepwater drilling rig market, although a stronger second half is anticipated as drilling activity recovers.

“Clearly, the first quarter was an exceptional hit and we believe investors should look forward to the year ending October 2012,” they said.

House broker Fairfax IS said: “Overall a very positive statement, especially given the potential for a stronger performance in second half from oil and gas.”